2013 beef production below forecasts

In addition to weaker consumer demand for beef during the first half of the year, higher-than-expected production contributed to the lower-than-expected fed cattle prices.

By:
South Dakota State University Extension Service, South Dakota State University Extension Service

BROOKINGS, S.D. — At this point in 2013, fed cattle prices have generally been disappointing, compared with 2012 forecasts, which called for prices in the low $130s for much of the first half of 2013. Instead, slaughter cattle prices averaged $125.12 per hundredweight for the first six months of the year, explains Darrell R. Mark, adjunct professor of Economics at South Dakota State University.

“Prices ranged from $120.04 to $128.44 per hundredweight for the first half of the year across the five-area market,” he says. “The spring high was posted in the first week of May, while the market appeared to find support for a summer low at about $120 per hundredweight for the last several weeks of June.”

In addition to weaker consumer demand during the first half of the year, Mark says higher-than-expected beef production contributed to the lower-than-expected fed cattle prices.

“Based on weekly data, federally inspected beef production totaled about 12.57 billion pounds from January through June 2013, which is only about 0.1 percent lower than during the same six months of 2012,” Mark says. “Generally, smaller cattle inventories over the last several years were thought to result in lower beef production in the first half of 2013, even though cattle dressed weights generally trend higher each year.”

Mark explains that federally inspected cattle dressed weights from January through June averaged 791 pounds, compared with 784 pounds last year. While that 0.8 percent increase isn’t far from the long-term trend line, it is well below the 2.3 percent increase seen in 2012 as a result of increased feeding of beta agonists last year.

“Cattle slaughter numbers, of course, are the other driver behind changes in beef production,” Mark says. “From January to June 2013, federally inspected cattle slaughter totaled 15.9 million head, about 1 percent less than in 2012. While that decrease in slaughter was enough to offset the modest increase in dressed weights, it is particularly interesting this year to examine the make-up of total cattle slaughter numbers.”

He adds that steer slaughter, which generally comprises about 46 percent of total cattle slaughter, was 1 percent lower during the first half of 2013. Fed heifer slaughter, though, was 4.1 percent below the same period a year ago.

The fact that beef cow slaughter ran about 11 percent below year-ago levels during January and February further supported expansion possibilities in the beef cow industry, Mark says.

“However, those plans changed in early spring as feed prices remained high and dry conditions prevailed across key areas of cow-calf country,” he says. “This likely contributed to the increase in feeder cattle placements during March and April as some of the retained heifers were placed on feed.”

More dramatically, Mark says beef cow slaughter averaged 15 percent higher than a year ago on a weekly basis from mid-March through mid-May.

For the first half of 2013, fed steer and heifer slaughter was 2 percent lower than in 2012, while combined beef and dairy cow slaughter was 3.4 percent higher.

Lower production ahead

As we look toward the second half of 2013, Mark says it is likely that much-improved pasture and range conditions and prospects for much lower corn prices will result in increased interest in beef cow herd growth.

Therefore, he says beef cow slaughter is likely to drop in the months ahead and result in 10 to 12 percent less cow beef production, compared with the second half of 2012. While cow slaughter and cow beef production will be the key to how much total beef production drops in the second half of 2013, fed steer and heifer beef production will likely decline around 4 percent, compared with the previous year.

“Assuming those declines in both fed and non-fed beef production, the second half of 2013 will likely result in a counter-seasonal decrease in beef production of 2 percent, compared to the first six months of the year,” he says. “For the year, beef production is expected to be about 25.1 billion pounds in 2013, which would be about 3.2 percent less than in 2012.”

Lower beef production in the second half of 2013 will be supportive to fed cattle prices. Likely, slaughter cattle prices will average in the $122 to $125 per hundredweight range through the third quarter. Fourth quarter prices could average in the upper $120s, reflecting a normal seasonal increase in prices.

“While those prices are not much different than the first half of the year, they are 2.5 to 3 percent higher than in the second half of 2012,” he says. “And still, higher prices could materialize if consumer demand improves through the end of the year.”

Looking ahead to 2014, Mark says cattle slaughter numbers will likely decrease by 6 to 7 percent for the year.